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4000 - Advisory Opinions

Deposit Incentive Programs: Would the bank be Deemed "Deposit Broker" or be Confined by Certain Interest Rate Limitations Under Section 29 of the FDI Act


July 19, 1994

Valerie J. Best, Counsel

Thank you for your letter dated July 15, 1994. You write that your client, an unidentified federally chartered savings bank (the "Bank"), intends to offer two deposit incentive programs. Under the first program, Bank customers would be offered one of various forms of bonuses for referring new depositors to the Bank. The bonus could be in the form of an increased interest rate on either existing or future deposits in the Bank, cash or merchandise. Under the second incentive program, significant Bank depositors (e.g., depositors with large accounts) would be provided incentives to encourage repeat business. Such incentives likely would include slightly higher interest rates than are otherwise offered on comparable deposit programs offered by the Bank to members of the public generally, or merchandise. Although not discussed in your letter, I assume that, like most incentive programs, the cost of the incentive packages to the Bank is relatively small.

You asked me to confirm that, with respect to the first incentive program, customers receiving incentives to refer additional business to the Bank would not be deemed to be deposit brokers under section 29 of the Federal Deposit Insurance Act (the "FDI Act"). You also asked me to confirm that the Bank would not be deemed to be a deposit broker under either program. I agree that, under the circumstances described in your letter, the Bank and the Bank's customers would not be "deposit brokers," as that term is defined in the statute and implementing regulations.

Section 29 of the FDI Act imposes certain interest rate limitations on any depository institution that is not "well capitalized," however.1 If the Bank is not well capitalized and therefore subject to such interest rate limitations, I anticipate that the value of any incentives paid by the Bank under the incentive programs would be deemed to constitute additional interest payments for purposes of calculating the interest paid under section 29(h).

You also write that, as to both deposit incentive programs, you understand that such programs are permissible under applicable provisions of the FDI Act and the Rules and Regulations of the FDIC thereunder.2 While it is true that premiums are not prohibited by the FDI Act and the FDIC's Rules and Regulations, it appears from your letter that the Bank's primary Federal regulator is the Office of Thrift Supervision ("OTS"). I therefore suggest that you contact staff at the OTS to determine whether or not statutory or regulatory provisions enforced by the OTS regulate the payment of premiums. You may also wish to discuss with OTS staff what, if any, impact the Truth in Savings Act has on incentive programs.

I trust this adequately responds to your inquiry. Please call me at (202) 898-3812 if you have any questions.

1The interest rate limitations applicable to "adequately capitalized" depository institutions are discussed in FDIC Advisory Opinions 93--18 and 93--19 (March 11, 1993). The interest rate limitations applicable to "undercapitalized" depository institutions are set forth at section 29(h) of the FDIA and 12 C.F.R. 337.6(b)(3)(ii). The terms "well capitalized," "adequately capitalized," and "undercapitalized," have the same meaning as provided under regulations implementing section 38 of the FDI Act. With regard to depository institutions for which the primary Federal regulator is the Office of Thrift Supervision, regulations defining capital measures generally appear at 12 C.F.R. Part 565. Go back to Text

2Premiums are the subject of section 329.103 of the FDIC's Rules and Regulations (12 C.F.R. 329.103) (payments that are not deemed to be interest). Go back to Text

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